Land Banks – Think like a Real Estate Developer

I’ve worked in community development in one shape or another for 20 years. During that time, I’ve tried to operate by Occam’s Razor – the explanation with the fewest assumptions is likely best. It’s another way to think about the adage “keep it simple.” I tend to think about my customers’ work in terms of simple illustrations and analogies, and one that I really like is to think of a land bank as “a real estate developer acting in the public interest.”

Let me explain what I mean.

A real estate developer focuses on making or participating in deals involving property, and ultimately, making money in the process. Developers buy land, finance real estate deals, build or have builders build projects, create, imagine, control, and orchestrate the process of development from the beginning to end. How they do it varies, depending on their strategy, but it all boils down to taking property and squeezing value out of it by doing something to it – buying it, building on it, improving it, selling it, etc.

A land bank is really no different, except, of course, in some critical ways.

For the land banks I help, they are actively responsible for stewarding land through the same sort of transition. They serve as a way station for land and property and their actions are intended to make the properties they touch more valuable to the public good. The value could be economic value, like revenues, jobs and taxes, or social value, like beautification and better neighborhood quality of life. It may be a residential lot with a decayed house or a gas station today, but a pocket park or a new senior housing project in its next life. Whatever the intended use, the reason it is banked is to improve the chances of successful development in the future.

Using the Real Estate Developer’s Mindset to Approach your Process

I encourage the land banks I work with to start asking themselves the same types of questions a developer would when building their business strategy. As they go through these questions, it will help them begin to gather and review important resources to help them begin to think more strategically about their own projects.

Here are the five high-level real estate development questions land banks should start incorporating into their strategic planning:

1. What is your niche? Developers work with a specific type of property and often in a specific set of locations or neighborhoods. They master a niche. What’s your niche?
2. Who’s your target market? Real estate developers think about their customer personas or target audience. They plan to sell to that audience. What major groups are in your target market?
3. What are the rules? A successful real estate project depends on managing risk and avoiding uncertainty or ambiguity wherever possible. First and foremost, it involves understanding what is permissible under the land use rules and restrictions. As you plan a project, do you understand all of its rules?
4. What is your exit strategy? The payoff in a development deal happens when the property sells or is occupied for leasing. A developer knows the exit strategy before the project starts.
5. What is the structure of your pipeline? A developer thinks about the next project and stages projects to keep busy at all times. They want to develop a pipeline of projects. What does your pipeline look like?

Collecting the Information and Data to Answer these Questions

The resources you will need to be able to answer these questions may include property data, planning documents, market research, conversations with builders and community developers, and other sources of data collected during the land redevelopment cycle. Using a comprehensive property management system that can aggregate all of these types of information into one place, instead of using various spreadsheets and documents that live in multiple locations, can make this much easier.

Often times, the condition of land bank property is poor or the markets in which property is located are weak. Land banks have to come up with interim uses and plan out pre-development steps such as clearing properties of structures, curing title defects, assembling parcels for development, or changing the land use to something that better suits the community’s needs. And in this regard, the land bank is acting just like a developer would. It is “developing” the land – it is getting it ready for its next use.

That’s why I encourage my clients to think like a real estate developer acting in the public interest.

Because that’s what they are.

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